This overview will be followed by in-depth explorations of each
school. Linear-stage models see economic growth and development as
proceeding in linear fashion with the economy moving from one stage to
another and to another. The most famous of the linear-stage models is
the one propounded by W.W. Rostow. Rostow saw five stages of growth:

1. the traditional society,2. pre-conditions for take-off,3. take-off,4. drive to maturity, and5. the age of high mass consumption.

Rostow looked at how the Western world, in particular, went through
the process of economic development and concluded more or less that all
countries must go through the same stages. The beauty of the stages
approach is that policy makers only need to ensure that the conditions
exist in order to usher in the next stage of the development path. If
there is one thing we have learned about economic development, it is
that it is not easy to generalize the process. The processes appear to
vary from region to region and sometimes from country to country. Harrod
and Domar’s model is another linear-stage model. The model sees savings
as essential to development and, in some sense, the only necessary
input. The more a country saves, the more it grows. Savings of course is
necessary but not sufficient.

The structural change models look at how the economy develops or grows
by changing its structure. How does a predominantly agricultural economy
become an industrial economy? Among the several theories trying to
explain such structural change is one by Arthur Lewis. Structural
changes can be sparked by population changes, resource changes, or
government policies.

Dependency theories have their roots in colonialism and post
colonialism. Proponents of these theories argue that developing or poor
countries have their own structures that are different from those which
modernists would like to see prevail. There is also the assertion that
rich developed countries like to see the poor countries in a state of
submission in order to provide the raw materials that developed
countries need for their industries at low costs. The response from the
developing countries, particularly in the early 1960s in Latin America
was rapid industrialization.

Neo-classical growth models relate back to neo-classical economics.
Neo-classical economists argue that growth is a function of the factors
of production (capital, labor) productivity and technological change.
They represent extensions of the Harrod-Domar model, and the most
popular one now is the Solow Growth Model. You may have noticed that
many of the models talk about growth not development. Economists like to
talk and write about things they can measure.

Unit 2 Time Advisory
Completing this unit should take you approximately 21.25 hours.

☐ Subunit 2.1: 1.75 hours

☐ Subunit 2.2: 2.5 hours

☐ Subunit 2.3: 2.25 hours

☐ Subunit 2.4: 2.25 hours

☐ Subunit 2.5: 7 hours

☐ Subunit 2.5.1: 0.25 hours

☐ Subunit 2.5.2: 3 hours

☐ Subunit 2.5.3: 3.75 hours

☐ Subunit 2.6: 5.5 hours

☐ Activity: 5 hours

☐ Assessment: 0.5 hours

Unit2 Learning Outcomes
Upon successful completion of this unit, you should be able to:
- describe the various economic development theories;
- explain the similarities and differences among the various theories
and between any two theories;
- explain why any selected theory explains the development process
better or worse than another theory;
- identify the key variables in each theory; and
- explain how policy can influence or not influence the key variables
to improve economic performance.

2.1 Overview of Theories of Economic DevelopmentEarly traditional theories of economic development drew lessons from
the experiences of the West (mostly Europe and North America) as well as
the experience of re-building Europe after the World Wars. Other
theories were conceptualized by intellectuals from developing countries;
these adopt a view from the bottom. In the context of the Cold War,
these theories are heavily influenced by the debate on economic
structure taking place between the market-oriented West and the
Communist countries.

Reading: University of Iowa, Center for International Finance and
Development: E-Book on International Finance & Development: Ricardo
Contreras’ “Competing Theories of Economic Development”
Link: University of Iowa, Center for International Finance and
Development: E-Book on International Finance & Development:
Ricardo Contreras’ “Competing Theories of Economic
Development” (HTML
or PDF)

Instructions: Read this chapter, which provides a concise overview
of the major traditional theories of economic development. While
reading this chapter, consider the influences mentioned in the
information at the beginning of this subunit. You can access the PDF
by choosing the “Download PDF” link next to the Adobe Icon at the
top of the article.

Reading this chapter should take approximately 45 minutes.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above.

Instructions: When you click on the link above, you will be
directed to a webpage with a list of contents. Click on Chapter 4
and read the PowerPoint version of these notes. This lecture
outlines the “traditional theories” of economic development.

Studying these lecture notes should take approximately 1 hour.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: Read this brief webpage for an introduction to linear
stages of growth models.
Reading this article should take less than 15 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: This is a sample chapter of the textbook Economic
Development, 8th edition by Todaro and Smith, published
by Pearson Education. This textbook uses models and examples to
discuss real-world development issues. Please click on the link
above, and then select the “Chapter Four” hyperlink in order to
download the PDF. Read pages 110–112 up until the section titled
“Rostow’s Stages of Growth.”

Reading this chapter should take approximately 15 minutes.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above.

Instructions: Read this brief overview of Fisher-Clark’s theory.
This article will introduce you to the main concepts behind Fisher
and Clark’s theory on economic development that centers on changes
in the sophistication of the products made in a country. For
clarification on terms used, please see the glossary at the bottom
of the page.
Reading this article should take approximately 15 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above.

Instructions: Read this article, which introduces the five stages
described in Rostow’s model of economic development. While you read,
consider how this theory differs from that of Fisher and Clark. For
clarification on terms used, please see the glossary at the bottom
of the page.
Reading this article should take approximately 15 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above.

Instructions: Click on the “Chapter Four” hyperlink on the webpage
linked above. Read the section titled “Rostow’s Stages of Growth” on
pages 112 and 113.

Reading these articles should take approximately 15 minutes.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above

Reading: W.W. Rostow’s The Stages of Economic Growth: A
Non-Communist Manifesto: “Chapter 2: The Five Stages of Growth – A
Summary”
Link: W.W. Rostow’s The Stages of Economic Growth: A Non-Communist
Manifesto: “Chapter 2: The Five Stages of Growth – A
Summary” (HTML)

Instructions: Read this summary of Rostow’s five stages of growth,
which were outlined in the introduction to Unit 2.

Reading this chapter should take approximately 45 minutes.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: Click the “Chapter Four” hyperlink. Read the
introduction on p. 116 and the conclusion on pp. 122 and 123, up to
the section titled “The International-Dependence Revolution.”
Reading this chapter should take approximately 15 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above.

Instructions: Read this article for an introduction to the Lewis
Model, which tries to explain the co-existence of modern urban areas
and underdeveloped rural areas in developing countries. For
clarification on terms used, please see the glossary at the bottom
of the page.
Reading these articles should take approximately 15 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above.

Instructions: Click the “Chapter Four” link to download the PDF.
Read the section on the Structural Change model on pages 121 and
122.
Reading this article should take approximately 45 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Reading: The World Bank: William Branson, Isabel Guerrero, and
Bernhard Gunter’s “Patterns of Development 1970–1994”
Link: The World Bank: William Branson, Isabel Guerrero, and Bernhard
Gunter’s “Patterns of Development
1970–1994” (PDF)

Instructions: Read pages 1–9 and 31–33 for an overview of the
patterns of economic growth school as well as the conclusions of an
empirical test of the major tenets supported by this school. If you
have a background in econometrics, feel free to read the rest of the
document.

Reading this article should take approximately 15 minutes.

Terms of Use: This article has been reposted by the kind permission
of World Bank, and the original version can be
found here. Please
note that this material is under copyright and cannot be reproduced
in any capacity without explicit permission from the copyright
holder.

Instructions: Click on the “Chapter Four” hyperlink. Read “The
International-Dependence Revolution” on pages 123–127.
Reading this chapter should take approximately 30 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above.

2.4.1 Neo-Marxist
- Reading: PBS: David N. Balaam and Michael Veseth’s Introduction
to International Political Economy: “Lenin’s Critique of Global
Capitalism”
Link: PBS: David N. Balaam and Michael Veseth’s Introduction to
International Political Economy: “Lenin’s Critique of Global
Capitalism” (HTML)

Instructions: Read this excerpt. If you have any question on the
terms used, please consult the
[glossary](http://www.pbs.org/wgbh/commandingheights/shared/glossary/index.html).
Reading this chapter should take approximately 15 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above.

Instructions: Read the introductory paragraph, and then select the
links to the names of each participant to learn about their
perspectives on the Dependencia theory of economic development. What
are your thoughts on the theory? Were South American countries right
to adopt import substitution industrialization?

Reading this article and answering the questions above should take
approximately 30 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: Read this brief overview of Neo-Classical economic
growth theory. This article will introduce the main concepts behind
neo-classical theories of economic development. This section is
followed by details on the Solow Growth Model and extensions of this
model. For clarification on terms used, please see the glossary at
the bottom of the page.

Reading this chapter should take approximately 15 minutes.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above.

Instructions: When you click on the link above, you will be
directed to the study space for the W. Norton and Company’s
Macroeconomics textbook by Charles I. Jones. Please skim the
outline presented on this webpage. Do not worry if you do not fully
understand all of the key concepts after reading the chapter
outline; the tutorial that follows will help flesh these key
concepts out.

Skimming this outline should take approximately 1 hour.
Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: When you click on the link above, you will be
directed to the study space for the W. Norton and Company’s
Macroeconomics textbook by Charles I. Jones. From this page, click
on the link for “Launch Solow Growth Model Tutorial” and a narrated,
illustrated lecture will automatically launch.

Studying this resource should take approximately 1 hour.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: When you click on the link above, you will be
directed to a quiz within the study space for the W. Norton and
Company’s Macroeconomics textbook by Charles I. Jones. You will
have the choice between a 5, 10, or 15 question multiple choice
quizzes to test your understanding of the material in the
Chapter. Please take the 15 question quiz. Note that the software
will immediately give you a response to each question after your
answer is submitted and will provide an explanation of the correct
answer.

This assessment should take approximately 1 hour.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: When you click on the link above, you will be
directed to the study space for the W. Norton and Company’s
Macroeconomics textbook by Charles I. Jones. Review this chapter
outline. Do not worry if you do not understand all of the key
concepts after reading the chapter outline; the tutorial that
follows will further define these concepts.

Reading this chapter should take approximately 1 hour.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: When you click on the link above, you will be
directed to the study space for the W. Norton and Company’s
Macroeconomics textbook by Charles I Jones. From this page, click
on the link for “Launch Romer Model Tutorial” and a narrated,
illustrated lecture will automatically launch.

Watching this tutorial should take approximately 1 hour.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: When you click on the link above, you will be
directed to a quiz within the study space for the W. Norton and
Company’s Macroeconomics textbook by Charles I Jones. You will
have the choice between a 5, 10, or 15 question multiple choice
quizzes to test your understanding of the material in the Chapter.
Please take the 15 question quiz. Note that the software will
immediately give you a response to each question after your answer
is submitted and will provide an explanation of the correct
answer.

Completing this assessment should take approximately 1 hour.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

Instructions: Watch this lecture. In this subunit, you studied the
Romer model. The model presented ideas as an engine of economic
growth. In this guest lecture, Stanford economist Paul Romer
presents an example of how ideas can potentially lead to higher
growth and better governance of economies.

Watching this lecture and pausing to take notes should take
approximately 45 minutes.

Instructions: To access the Todaro and Smith quiz, click on “Quiz,”
on the left hand side of the page. Please complete the entire quiz
for Chapter 4. To grade your quiz, click on the link titled “Submit
answers for grading” at the bottom of the page. For more practice,
see the graphing and quantitative exercise.

Completing this assessment should take approximately 30 minutes.

Terms of Use: Please respect the copyright and terms of use
displayed on the webpages above.

Instructions: After reviewing the course materials for this unit,
please respond to the following questions by posting to the course
discussion board. Please feel free to start your own discussions as
well as review and respond to other students’ postings.

1. How does the Solow model differ from the Harrod-Domar
model?

2. Which model do you think is the most realistic, and why?

3. In recent years, many developing countries have been
liberalizing their economies. Compare North Korea’s development
progress with one such recently liberalized economy.

4. In A. Lewis’ economic development with unlimited supply of
labor, what are the main factors that could drive economic
development and what might be some of the constraints?